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UK inflation falls to 2% target for first time in four years

by Robert St George on Jan 14, 2014 at 09:42

UK inflation falls to 2% target for first time in four years

The Consumer Prices Index (CPI) grew by 2% in the year to December 2013, the first time it has hit the Bank of England’s target since 2009.

The inflation rate, down from 2.1% in November, is now the lowest it has been since it stood at 1.9% in November 2009.

The largest contributions to the fall in the rate came from prices for food and non-alcoholic beverages and from recreational goods and services, offsetting higher motor fuel prices. The Office of National Statistics said the rise food and non-alcoholic drinks was the smallest since 2006.

The Retail Price Index rose from 2.6% to 2.7%.

The fall in inflation is likely to ease the pressure on Bank of England governor Mark Carney to raise interest rates.

Capital Economics' UK economist Samuel Tombs expects the trend of lower inflation to continue over the next few months.  

Tombs said: 'Energy prices will fall in the spring as utility companies pass on the government’s environmental tax cuts. Last year’s falls in global agricultural commodity prices suggest that food price inflation could ease to close to zero soon. And the recent fall in import prices in response to the stronger pound should begin to be seen in the shops mid-way through this year

He added: 'CPI inflation looks likely to spend more time below the 2% target than above it in 2014, helping real earnings to finally recover and enabling the MPC to leave interest rates on hold this year regardless of the unemployment figures.'

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